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Governor Newsom Signs AB5: Major Changes to Employee or Independent Contractor Status

Governor Newsom Signs AB5: Major Changes to Employee or Independent Contractor Status

Sep 24, 2019, 2 Minute Read

Last week Governor Newsom signed AB5. Taking effect on January 1, 2020, AB5 makes major changes to how California employers can classify workers as independent contractors or as employees.

Exemptions for Insurance Agents
Insurance agents and brokers were originally not exempt from the law. The California Association of Health Underwriters successfully presented the case that agents and brokers should be classified as independent contractors. The final law includes agents and brokers on the exemption list. See more on exemptions below.

The New “ABC” Classification Test
The new law largely codifies a recent California Supreme Court ruling requiring a new “ABC” test for determining whether a worker may be classified as an employee or an independent contractor. This JD Supra article summarizes well the new “ABC” test.

Employer Impact
For California’s businesses, the impact of the legislation is that some workers previously classified as independent contractors are to be classified as employees come January. Businesses affected may incur new costs from requirements such as minimum wage, sick leave, and unemployment and workers’ compensation benefits.

Much attention in the press has been made of the major players in the gig economy such as Uber and Lyft, and the impact of the law – or not – on them. However, industry groups, including advocates for insurance agents, were successful in adding exemptions to the law for many industries and professions.

The list of currently exempted industries is long, and the criteria for exemption is often complex. This CalChamber article summarizes well the exemptions to the law.

Industry groups such as the California Chamber of Commerce have stated they will continue to press for additional exemptions.

Group Benefits Impact
Of particular interest to employee benefits brokers and advisors is the impact the new law will have on clients’ employee benefits programs. For any particular employer group, the change of a worker classification from independent contractor to employee will impact many aspects of the benefits program, primarily on cost, but also possibly including participation requirements, benefits eligibility, ACA requirements and more.

Claremont has several HR Compliance partners which can help brokers and employers navigate the AB5 changes. See the HR Compliance section on our partner page for company descriptions and contacts.

Contact the small group experts at 800.696.4543 or